World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Thursday, February 19, 2009

Got to love that rant of Rick Santelli today. That will be remembered years from now, and his call to remember our country’s founders is spot on. Franklin and Jefferson would, indeed, be rolling over in their graves.

And the markets wound up going where they belong despite attempts to the contrary. Simply too many sell orders to hold today and down she went. No, I’m not cheering it on… it just is what it is and if you are relying on HOPE to overcome reality, you are simply going to lose.

At any rate, today’s close was very significant for most technicians as it confirmed yet another DOW Theory sell signal by having the Industrials close at new lows on the same day as the Transports. Not only was that accomplished, but the Industrials also made a new intraday low, if only by a couple of points. There is now no arguing about it, done deal. Now we move on to the S&P and NDX, who have yet to confirm theirs. And for those technicians who are waiting for the Wilshire to make new lows, take a look at the Major Market Index which made new lows Tuesday.

Significantly, today’s close was beneath all the weekly closes at the lows in 2002 & 2003, and sent stock prices back to where they were all the way back in 1997. And the truth is that when substitution bias is removed, they would be a lot further back in time than that. It also looks like we’re about to make a weekly close beneath the 20 year uptrend line:

By the way, the Japanese Nikkei index is very close to making new 20 year lows. It was 1990 that the Nikkei topped out above 40,000 and is at only 7,500 today, 81% lower. Think that can’t happen here? The “experts” say that our markets are freer and will correct faster. Are you willing to bet on that, or does the fact that we are starting from a far worse debt situation scare you? Oh, and Japan has had its difficulty during the greatest growth boom the planet has ever seen – are we going to be pulled up by others?

For today, the DOW closed down 89 points, the S&P lost 1.2%, the NDX gave up 1.8%, and the RUT was down 1.5%. The XLF dragged down the entire market again, losing another 5.27%. C and BAC are on the edge… something’s going to have to happen soon.

Internally, decliners outpaced advancing issues by a 2.5 to 1 margin and 72% of the volume was on the down side. Again, certainly not capitulation selling.

Here’s a three month daily chart of the DOW. You can see the November lows on the far left. We’re still in the latest downtrend channel, and not even at the bottom of it. If you look at the Jan. 6th peak, you can see that we are clearly in wave 3 down, most likely of wave 5 of the larger wave A. As far as the DOW is concerned, being in wave B up/sideways is officially off the table with these new lows. Yes, you can choose to ignore the DOW if you wish, let me know how that works out for you:

Just to give you the same view of the Transports, here you can see that we broke the November lows some time ago, and have been making new closing lows every day for the past week. Remember that transports are a leading indicator. By the way, no capitulation volume on either of these charts although they are now riding the lower Bollinger down:

Next, let’s look at a 3 month view of the SPX. We finally got beneath the 789 pivot and the next lower is at 768. I removed McHugh’s ending diagonal as we broke beneath it and instead drew in the red channel that corresponds to the green channel on the DOW. Indicators are definitely oversold, but the slow still has room with my settings. Again, riding the Bollinger down and you can see that the magic numbers now are the November close at 752 and the pin low is 741:

The NDX produced a very bearish candle and you can see that it has a long way to go to its November bottom:

The NDX triggered a breakdown on the P&F chart today, finally joining the party. Note the lack of volume support beneath here:

The put/call ratio actually fell a little today although it's still elevated and needs to be watched.

Overall, I don’t think we’ve put in the bottom yet for this downtrend, but we’re getting closer to it. What would mess with the most people’s minds? A big sell off tomorrow that takes near the 2002 lows on the SPX. That will cause big losses for options writers (unless they are able to pump it or cover elsewhere) and would leave everyone guessing over the weekend.

Have a good evening, continue to raise capital if you have it, times are going to get harder here before they get better.

Since Seth got me started on the Donovan tunes, here’s a very pretty song for the bulls who may be way down below the ocean, although I’m sure that’s not where they want to be: